Bailout won’t cure all that ails housing

[hipmatt]

http://www.chicagotribune.com/business/chi-tue-fannie-freddie-impact-sep09,0,480932.story

How mortgage rescue could affect you

By Mary Ellen Podmolik | Chicago Tribune reporter
12:41 AM CDT, September 9, 2008

If you were sitting on the fence, waiting for a sign that this was the right time to buy a home, you might just want to get comfortable.

The federal government’s seizure of Fannie Mae and Freddie Mac over the weekend appeared to boost investor confidence in the country’s ability to stabilize the housing crisis and prompted a dip in mortgage rates Monday. So if the only thing standing between you and a new house is the need for a slightly lower monthly mortgage payment, you may be in luck.

But here’s what placing the two mortgage giants in conservatorship doesn’t do: It doesn’t loosen credit and underwriting standards, which have been tight for the better part of a year. So if you didn’t qualify for a mortgage last week, your chances this week aren’t much better.

And here’s another important fact: The government’s dramatic action doesn’t directly affect the glut of homes on the market, which means values will continue to be depressed.

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Declining interest rates? Declining interest rates? Graphic

While the real estate industry hopes the change at Freddie and Fannie makes potential buyers feel better about a purchase, it can’t fix all of what ails the consumer, including a rising unemployment rate.

“This does nothing to help the broader economic problems we are struggling with,” said David Oser, chief economist at ShoreBank. “I don’t want to buy a new house if I don’t have a job.”

Fannie and Freddie are crucial to the housing market because they are responsible for $5 trillion in mortgages, which they either buy and hold or package and sell to investors. If they had failed, the damage done to the real estate industry could have been crippling.

On Monday, Wall Street roared back, with the Dow Jones industrial average jumping nearly 290 points. While investors cheered the seizure, the impact for consumers is less clear.

The earliest beneficiaries of the government’s intervention are likely to be existing homeowners looking to refinance their mortgages. Nationally, the average rate on conforming 30-year fixed-rate mortgages was 6.08 percent Monday, compared with 6.26 percent at the end of last week, according to research firm Bankrate.com.

Mortgage bankers and economists expect the drop in rates could be as much as 1 percentage point, because the Treasury Department’s plan to buy Fannie- and Freddie-issued mortgage-backed securities will make those instruments appear less risky and more appealing to investors. That will bring down costs for Fannie and Freddie, allowing them to pass along the savings to borrowers in the form of lower mortgage rates.

However, the good news on refinancing won’t benefit all homeowners. Those who bought on the high end of the market, and now find their mortgage debt exceeds the depreciated value of their house, may not qualify for refinancing, lenders said.

Consumers considering a home purchase may be lured into the market by lower rates—rates under 6 percent are a good psychological benchmark—but mortgage bankers say they anticipate having to explain that while the rates may be lower, the credit requirements necessary to obtain a mortgage are not.

Long term, the government may loosen lending standards because they are in charge of the agencies, but for the time being lending and underwriting standards will remain stringent.

“If the rate was 61/2 percent or 6 percent, it doesn’t make that much of a difference in qualifying,” said Jeff Slater, vice president of BancGroup Mortgage Corp. in Palos Hills. “You either have good enough income to qualify or you don’t.”

Added David Dunham, vice president of Interbank Mortgage Co. in Northbrook, “I think it’s more confidence than anything else. In terms of how many hoops we want people to jump through, this isn’t going to affect that.”

Some worry that falling rates and still falling prices may encourage potential home buyers to remain on the sidelines, waiting to see how far down home prices, and rates, will go.

“What’s keeping people out of the market is people are waiting to see if it’s bottomed out,” said Judy Jisa, broker/owner of Burlington Realty in Riverside.

Mark Zandi, chief economist of Moody’s Economy.com, predicts home prices will fall another 5 percent to 10 percent, and it will take a few years before the supply of and demand for housing reaches equilibrium. The drop in prices, he added, would have been twice as bad had the government not intervened.

Jim Merrion, regional director of Re/Max Northern Illinois, said he would like the government takeover to lead to a quick housing recovery. But he’s nagged by two questions: One is whether economic worries will lead to even a slight bump in home sales. The other is more long term and involves him switching his real estate hat for his taxpayer hat.

“The question is, now that we’ve done it, how are we [as taxpayers] going to pay for it?”

[sdrealtor]

I cant speak for the RE guys around here but the uptick in activity the last few days has been VERY, VERY noticable. Interest rates are under 6% for conventional loans and the payment on a 500K loan dropped more than $400/month. In areas with qualified buyers and relatively low inventory levels the market appears to have strengthened quite a bit around here.

[sdrealtor]

I cant speak for the RE guys around here but the uptick in activity the last few days has been VERY, VERY noticable. Interest rates are under 6% for conventional loans and the payment on a 500K loan dropped more than $400/month. In areas with qualified buyers and relatively low inventory levels the market appears to have strengthened quite a bit around here.

[sdrealtor]

I cant speak for the RE guys around here but the uptick in activity the last few days has been VERY, VERY noticable. Interest rates are under 6% for conventional loans and the payment on a 500K loan dropped more than $400/month. In areas with qualified buyers and relatively low inventory levels the market appears to have strengthened quite a bit around here.

[sdrealtor]

I cant speak for the RE guys around here but the uptick in activity the last few days has been VERY, VERY noticable. Interest rates are under 6% for conventional loans and the payment on a 500K loan dropped more than $400/month. In areas with qualified buyers and relatively low inventory levels the market appears to have strengthened quite a bit around here.

[sdrealtor]

I cant speak for the RE guys around here but the uptick in activity the last few days has been VERY, VERY noticable. Interest rates are under 6% for conventional loans and the payment on a 500K loan dropped more than $400/month. In areas with qualified buyers and relatively low inventory levels the market appears to have strengthened quite a bit around here.

[BGinRB]

That is going to hurt your cash buyers.

Where are the buyers coming from? Other markets, renters, move-up, investors, speculators?

[BGinRB]

That is going to hurt your cash buyers.

Where are the buyers coming from? Other markets, renters, move-up, investors, speculators?

[BGinRB]

That is going to hurt your cash buyers.

Where are the buyers coming from? Other markets, renters, move-up, investors, speculators?

[BGinRB]

That is going to hurt your cash buyers.

Where are the buyers coming from? Other markets, renters, move-up, investors, speculators?

[BGinRB]

That is going to hurt your cash buyers.

Where are the buyers coming from? Other markets, renters, move-up, investors, speculators?

[bob007]

sdrealtor:

do you think the high priced coastal areas are a year or two away from declining ?

given the risks in loaning money for homes i would presume interest rates will go up eventually. Who is going US mortgages at 6% ? Obviously not the Chinese

[bob007]

sdrealtor:

do you think the high priced coastal areas are a year or two away from declining ?

given the risks in loaning money for homes i would presume interest rates will go up eventually. Who is going US mortgages at 6% ? Obviously not the Chinese

[bob007]

sdrealtor:

do you think the high priced coastal areas are a year or two away from declining ?

given the risks in loaning money for homes i would presume interest rates will go up eventually. Who is going US mortgages at 6% ? Obviously not the Chinese

[bob007]

sdrealtor:

do you think the high priced coastal areas are a year or two away from declining ?

given the risks in loaning money for homes i would presume interest rates will go up eventually. Who is going US mortgages at 6% ? Obviously not the Chinese

[Author]

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